Prospective TDS amendment under section 194A cannot fasten earlier liability on co-operative banking payments.

In the pre-2015 TDS regime, the analysis treats a co-operative society carrying on banking business and a co-operative bank as not materially different for section 194A purposes. The Finance Act, 2015 amendment to section 194A was introduced to resolve the controversy and was stated to operate from 1 June 2015, so it is not applied retrospectively in the absence of express language or necessary implication. On that basis, tax deduction was not required for the earlier assessment year and disallowance under section 40(a)(ia) was not sustainable.

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Issues: Whether disallowance under section 40(a)(ia) could be sustained for non-deduction of tax at source on interest paid by a co-operative bank for the assessment year 2012-13, and whether the amendment to section 194A brought in by Finance Act, 2015 operated retrospectively or prospectively.

Analysis: The dispute turned on the scope of section 194A in relation to co-operative banks and co-operative societies engaged in banking business. The governing authorities and the reasoning adopted in the referenced High Court decision showed that the relevant enactments did not create any meaningful distinction between a co-operative society carrying on banking and a co-operative bank for the purpose of the pre-amendment TDS provisions. The later amendment introduced by Finance Act, 2015 was expressly intended to resolve the controversy and was stated to operate from 01.06.2015. An amendment made to remove ambiguity or an anomalous position is not to be treated as retrospective in the absence of express language or necessary implication.

Conclusion: The assessee was not liable to deduct tax at source for the year in question and the disallowance under section 40(a)(ia) was not sustainable. The revenue's appeal was dismissed.

Ratio Decidendi: An amendment to a TDS exemption provision, introduced to remove doubt and stated to apply prospectively, cannot be applied retrospectively to fasten liability for earlier years.

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